Are philanthropic activities just another way to acquire tax benefits?
Charitable donation by people and businesses is a significant source of financing for nonprofit organizations. However, these charitable acts are influenced by various factors. For some donors, it is just their desire to help others in need when they are in a position to help them and for others it can be a good way of acquiring a tax break. Governments give tax benefit to individuals and businesses that donate money to NGOs. While these elements and reasons can vary for each individual or business, surveys and studies have shown that tax benefits heavily influence the size of the donation. The more they donate, the more benefit they get on the amount donated.
The reason is simple, to reduce taxes by using that amount to fund a nonprofit organization and is known as a tax incentive. Tax incentives are assimilated in the tax codes at all levels of government be it federal, state or local. The amount donated is mentioned on the tax return and is then used in calculating the total tax liability. The most basic kinds of tax incentives are either in the form of tax deductions or tax credits.
It has been often shown to benefit the rich industrialists much more than normal individuals or even small-scale businesses. The way it is set up, people on the lower income strata can bare to take any advantage of it. It makes no financial sense to acquire tax breaks this way unless the donation is made in a huge amount. Studies have even shown that tax deduction system has primarily been aimed at helping the rich in the society more.
However, the funding by business giants to nonprofit organizations is a very important source for them. Whether it benefits the rich people or not, at the end of the day, the amount donated helps a person in need. While it is true that government should make policies that equally benefit all, it is still imperative that a person with more money is of more help to an organization than others from a lower income group. Tax benefit still does its duties in providing relief to people who need it and additionally they help the person donating as well.